Public pensions go up

Less than 3 months ahead of the presidential election, the public pension increase has turned into a campaign theme

Higher pension benefits as of September 1

As of September 1, the value of the pension point, against which pension benefits are calculated in Romania, was raised by 15%. Five million pensioners benefit from the increase. The new law stipulates a gradual increase of the pension point value between 2019 and 2022, as well as the updating of millions of pension benefits paid at present.

The new act also provides for including Ph.D. and M.A. programmes in calculating length of service, and the possibility to “buy” a maximum of 5 years of service. Minimum pensions will only be paid to people who have contributed to the public pension fund for at least 15 years.

Under the new law, the minimum guaranteed pension goes up from 640 to 704 lei. With an exchange rate of around 4.7 lei for the euro, Romanian pensioners remain some of the poorest in Europe, observers note, adding that over the past few years the steady rise in consumer prices has affected spending power substantially.

Even so, on Friday the International Monetary Fund recommended that Romanian authorities revise the new Pension Law, initiate a sustainable fiscal consolidation process and improve the management of public institutions. IMF experts argue that the new law jeopardises fiscal sustainability. According to the IMF assessment, Romania’s economic growth rate will stay at 4% in 2019 and drop to 3% in the medium run. Estimates also show that the country’s budget deficit is set to reach 3.7% of GDP this year.

The Social Democrats’ candidate in this November’s presidential election, PM Viorica Dancila, promised that the government has all the funds required to cover the measures taken by her Cabinet. She says the pension increase is an act of justice, and that never will a Social Democratic government measure pensioners’ incomes against macroeconomic indicators.

Analysts are not surprised with this move, given that pensioners make up an overwhelming majority of the voters of the Social Democratic Party. On the other hand, the Liberal vice-president, Senator Florin Citu, whose party supports the incumbent president Klaus Iohannis for a new term in office, criticises the Prime Minister’s statement. It is not true that pensioners’ incomes are not correlated to the macroeconomic deficit, the Liberal economist said in a Facebook post, and added that the recent budget amendment approved by the Finance Minister indicates the measure will result in an estimated 2.9 billion lei deficit in the public pension budget, and the actual deficit will likely be at least double the estimated figure.